Functions of an Entrepreneur

While the characteristics discussed above describe what kind of person an entrepreneur tends to be, the functions of an entrepreneur describe what an entrepreneur actually DOES in the course of building and running an enterprise. Economists who have studied entrepreneurship over the last two centuries have identified several distinct functions.

1. Idea generation and opportunity identification. Every enterprise starts with the entrepreneur noticing an unmet need, an inefficiency, or a gap in the market, and forming an idea for a product or service that can address it. This is the starting point of the entire entrepreneurial process.

2. Risk-taking and uncertainty-bearing. This is the classical function most closely associated with entrepreneurship. The economist Richard Cantillon, writing in the eighteenth century, was among the first to describe the entrepreneur as a person who buys resources at a known, certain price and sells output at an uncertain future price — bearing the risk of that uncertainty personally. Later, the economist Frank Knight refined this idea by drawing a sharp distinction between 'risk', which can be measured and insured against (because its probability is known or can be estimated), and 'uncertainty', which cannot be measured or insured against because the future outcome is genuinely unknown. Knight argued that it is specifically the bearing of this uninsurable UNCERTAINTY — not ordinary, measurable risk — that is the entrepreneur's true economic function and the real justification for entrepreneurial profit.

3. Innovation. The economist Joseph Schumpeter placed innovation at the very centre of his theory of entrepreneurship. Schumpeter described the entrepreneur as an 'innovator' whose central role is to carry out 'new combinations' — introducing a new product, a new method of production, opening a new market, finding a new source of supply of raw material, or creating a new form of business organisation. Schumpeter called the process by which these innovations continuously replace older products, firms, and ways of working 'creative destruction' — new, better combinations destroy the old ones, and this constant churn is, in Schumpeter's view, the true engine of economic growth and development.

4. Organisation and coordination of resources. Having identified an opportunity and accepted its risk, the entrepreneur must assemble and coordinate the factors of production — land, labour, capital, and technology — into a single, functioning enterprise. This organising function is what actually converts an idea into an operating business. …